Efficient, bold and sustainable: McDonald's supply chain secrets

McDonald’s UK spends £1bn every year through its supply chain, and Connor McVeigh decides where the money goes. He talks Brexit, British potatoes and making big bets

Twenty-six grams of iceberg lettuce might not sound like much, but it contains an important lesson about supply chain at McDonald’s. Early in 2017, a greens shortage hit the UK, thanks to a dearth of salad in the Mediterranean region. Some British supermarkets even started rationing iceberg lettuces.

This humble lettuce is critical for the construction of one of the most iconic – and best selling – products at McDonald’s: the Big Mac. As UK supply chain director Connor McVeigh explains to SM when we meet at the company’s UK head office (in its restaurant, of course), a Big Mac can only be served with the requisite 26g of lettuce between its buns. The salad deficit could have been severely disruptive. But McDonald’s, unlike many other retailers and restaurant chains, didn’t suffer a shortage.

The reason? “We had been working with that [iceberg lettuce] supplier for the last 26 years. They knew they had a long-term, growing business with us in the future, and that’s why they prioritised us,” says McVeigh.

A focus on the long term is what characterises the McDonald’s supply chain strategy, according to McVeigh. He joined the fast-food restaurant chain in November 2013, having spent most of his career buying food for major supermarkets (Morrisons and Sainsbury’s). At McDonald’s his remit is wide, covering purchasing, agriculture, restaurant sustainability, distribution and logistics, quality and nutrition.

“Twenty years ago, my role was buying fresh produce,” he recalls. “Negotiations were done week to week, sometimes day to day. The supplier base would be different from year to year.” By way of comparison, in the four years he has been at McDonald’s, his supplier base hasn’t changed. “There’s a greater focus on partnership – open communication and engagement and long-term relations,” he says. “Those are all clichés most retailers would claim as the hallmarks of their supply chain, but the depth, credibility and genuine nature of some of those characteristics are significant. A large part of it is non-negotiable.”

In it for the long haul

McDonald’s has had a presence in the UK since 1974, and has been working with two suppliers (McCain for potatoes and OSI for beef patties) since “day one”. The “vast majority” of its supply base in the UK has been partnering with the business for more than 20, maybe even 30 years, McVeigh estimates. “Chopping and changing, flip-flopping between suppliers breeds a lack of confidence and a distrust which we can’t afford,” he adds.

This is partly because the McDonald’s food requirements are relatively small, particularly when compared to a major supermarket. McVeigh’s team only sources 120 ingredients for the menu. “It’s not wide, but the depth and scale of our business in each of those [items] is very important,” he says. With more than 1,200 restaurants in the UK serving more than 3.7m customers every day, he’s not wrong. As with the iceberg lettuce example, a shortage of any one of the 120 items would have a major impact on consumers. Consistency, reliability and quality are critical.

Long-term relationships give suppliers confidence to grow and invest in their own businesses, creating a virtuous circle. McDonald’s has a “three-legged stool” operating model, with each leg of the stool representing the business, franchisees and suppliers. “Each of those three partners plays an equal role in contributing, but also an equal level of being a beneficiary,” explains McVeigh. It’s a model that contributes to the business being consistently ranked in Gartner’s Supply Chain Top 25. It has been in second place every year since 2013. But however warm and fuzzy this all might sound, McVeigh stresses that “partnership doesn’t mean we are soft on price”.

“We have expectations, as do our customers – but every conversation I have with a supplier about price is usually followed by a conversation about how we are going to invest for the future. With a stable and confident supply base, we can focus on the stuff that really excites me: how can we improve our proposition and identify those ‘big bets’ that we can get behind, together with our suppliers?”

Now is the time, he feels, to really zone in on those “big bets”, given that McDonald’s has made considerable strides over recent years to improve the basics. “Ten years ago, we were struggling with [the basics] and giving our customers what they wanted from a quality, provenance and sourcing perspective,” he acknowledges. That prompted a “radical rethink” to put the customer at the heart of everything, “even to the detriment of the business financially in some instances”.

Consumer demands around food have changed “enormously”, forcing McDonald’s and other fast-food retailers to up their game with healthy options and quality. McDonald’s’ US business in particular has struggled in recent years due to the perception that its food is unhealthy and overprocessed, with sales falling 3.3% over six years. But a shift towards higher- quality food, healthier choices and in-store technology (many stores now allow customers to order via digital self-service kiosks) appears to have turned things around. Last July, the company’s shares hit an all-time high.

The supply chain-related questions people now ask about their food have dramatically shifted, says McVeigh. “Ten years ago, they would have been talking about speed of service, quality, cleanliness. Now, they are asking about where the food comes from, animal-welfare standards and environmental standards. People might be surprised that customers at McDonald’s are asking those questions, but we’ve listened and acted accordingly.”

Environmental focus

When it comes to animal welfare, all pork and eggs are now RSPCA-assured and standards have been improved across chicken farms, with all chickens having access to natural daylight and pecking objects – something McVeigh says is “a first for a business of our scale in the UK”. Many ideas for improvements come from the supply base: a meeting with a McDonald’s egg supplier in Cumbria, for example, has led to a mass tree planting initiative.

“Chickens are hardwired to be concerned about overhead predators,” explains McVeigh. “[The supplier] had an idea about providing tree cover on their free-range egg farms. We supported them with some scientific research, which found tree cover improved the roaming nature of the chickens, and ultimately improved the yield and quality of the eggs. We shared that with all our British free-range egg farmers, and six years later, we’ve planted 5,500 trees – an area the size of Hyde Park.”

The minimum 20% tree cover McDonald’s now insists on has informed the standards of other retailers, he claims. “That’s an incredibly powerful and rewarding position to be in: how we can join the dots between what we do and what’s important to our customers. The decisions we make can positively influence so many people and shape expectations.”

On modern slavery – a particular issue in agriculture – McDonald’s trains its suppliers on human rights via its Supplier Workplace Accountability programme. Regular unannounced audits include inspections of housing and café facilities, and workers are interviewed privately.

Restaurant sustainability is another area of focus. In October 2017, McDonald’s signed an agreement, along with high-street brands including Starbucks and Costa, with the Alliance for Beverage Cartons and the Environment to accelerate the recycling of PE-lined paper cups.

The company has been working with two parties, including papermakers James Cropper, to overcome the technical challenges of recycling plastic-coated cups. Now, all McDonald’s cups can be recycled into high-end stationery. “If you go to Harvey Nichols or Selfridges, that packaging could be made from a McDonald’s cup,” says McVeigh. The next challenge is to encourage more customers to actually bother to recycle their cups and provide more material, and McVeigh’s team have entered a partnership with two suppliers on “some leading-edge technology” to find a solution.

Buying British is a major part of the company’s refreshed proposition, one of the “cornerstones” of what both customers and suppliers are asking for, says McVeigh. Despite McDonald’s being a global corporate empire with a standard operating model, he has the flexibility to make changes such as this at market level. Some 70% of McVeigh’s £1bn supply chain spend goes to British farmers and suppliers – “and that’s growing”.

Supporting British farming gives suppliers the confidence “to take a punt” on investing in their businesses. The company’s 2015 commitment to buy 100% British potatoes for its French fries is one example. That has led to its supplier McCain investing more than £100m in refurbishing its UK production sites. McVeigh adds: “Businesses like that won’t make those decisions without some degree of confidence in their customer base.”

Communication is key

The spectre of Brexit looms large for the food industry. McVeigh holds a fortnightly call with some suppliers to discuss Brexit-related matters – “to understand their perspective, what they expect of us, making sure we are close to the ground in understanding concerns and opportunities”. Over the last year, he has seen a move to focusing on what “we can control” and says Brexit concerns haven’t stymied investment or delayed decision-making.

“I’ve been able to reassure our suppliers and farmers that… Brexit may be uncertain and may present potholes in the road, but it won’t change our focus on what matters to customers. And customers are still telling me they want us to support British farming.” The fortnightly calls also make sure the business can appropriately represent farmers’ concerns with industry bodies and government.

Regular communication with farmers is further enabled via the company’s Farm Forward programme. This agriculture strategy, launched in 2012, supports British and Irish farming and involves regular surveys of the more than 17,500 farmers in the supply chain. The most recent survey found that a key challenge for the agri-food industry is the lack of people choosing it as a career. According to the Food and Drink Federation, more than 140,000 new entrants are needed to maintain food and drink production in the UK. “When you’ve got big exposure and commitment to British food and farming, you have skin in the game,” says McVeigh.

In an effort to help attract people into food-related jobs, McDonald’s launched its Food Steps campaign last year. It includes a 40ft virtual-reality-enabled truck that allows people to “see the supply chain end-to-end”. The truck has so far engaged with about 1.5m people. “We’re hoping we will have prompted them to think differently about food, farming and McDonald’s,” says McVeigh.

A bright future

This investment in virtual reality is not an isolated example of cutting-edge technology; there are plenty of others throughout the McDonald’s supply chain, showing an appetite from farmers to embrace new tools. The company is working with Leaf, its salad provider, on using hydroponics for internal leaf production, allowing delicate salad leaves to be grown 52 weeks a year.

On a recent potato farm visit, McVeigh met a farmer using drone technology to look at his 22,000 acres of land. “He was using it to assess the stone coverage, to be able to decide what kind of crop to put down and how to prepare the land for that crop.” Another supplier, a chicken farmer, has developed an app linked up to CCTV, enabling him to monitor his flock without being there 24/7 and freeing up time to develop his business elsewhere.

“Part of our role is about understanding that technology and feeding it back into our [agriculture] strategy,” says McVeigh. “How can we play a role in identifying technological best practices, roll it out and replicate it? That’s the fun bit: where you can engage with farmers who have got an appetite but may need direction, finding out what those best practice solutions are and bringing farmers together to share and discuss.”

Technology is also being rolled out across distribution centres, with a £25m investment and a significant amount of automation technology. By mid-2019, the UK will have the most advanced and automated McDonald’s distribution centres globally. Given a case of product is delivered to restaurants every two seconds – that’s 71m cases a year – any added efficiencies can make all the difference to busy front- and back-of-house employees. While temperature checking used to be done manually, it has been digitised, meaning a delivery can now be received in seconds.

“We have grown our business volume-wise by more than 50% over the last five years and have restaurants doing double the volume they were built for,” says McVeigh. “There’s a critical need for my team to play their part so our crew can provide the best experience for customers, rather than spending time receiving delivery. Where automation can take away the burden and where our supplier partners can take on some accountability, freeing up staff in the restaurants, that’s a win for everyone.”

Looking to the future, in a competitive, fast-changing market, McVeigh is enthusiastic about the impact strategic sourcing can have. “It’s the opportunity to be able to shape not just our supply chain, but so much more of what will drive our success: making our supply chain more efficient, being bold, being able to use our scale for good.”

Customers, he says, don’t want a different McDonald’s; they just want a better one. “The fundamentals they enjoy; they just want more consistency and to turn up the dial.” And, he hopes, a supply chain strategy centred around ‘big bets’ will play a major part in getting there.

McDonald’s in numbers

1974 First restaurant opens in the UK

34,000 restaurants around the world

1,200+ in the UK

3.7m people served every day in the UK

115,000 UK employees

17,500 British and Irish farms in the supply chain

130,000 jobs supported through the UK supply chain

£1bn spent through McDonald’s UK supply chain each year

70% of spend goes to UK farmers

280,000 tonnes of potatoes used in 2016 in the UK

Connor Mcveigh CV

Since he joined McDonald’s, McVeigh has focused on supplier consistency and confidence